EXHIBIT 10.75
[LETTERHEAD] CORPORATE LEGAL DEPARTMENT
June 1, 1998
Mr. Xxxx Xxxxx
The California Wellness Foundation
0000 Xxxxxx Xxxxxx
Xxxxxxxx Xxxxx, XX 00000
Re: THE CALIFORNIA WELLNESS FOUNDATION
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Dear Xxxx:
The purpose of this letter is to set forth the revised agreements between
Foundation Health Systems, Inc. ("FHS") and The California Wellness Foundation
("CWF") relating to CWF's proposed disposal of shares of FHS Class B Common
Stock (the "Class B Common Stock").
In this connection and as discussed, it is proposed that FHS provide its consent
under the Amended Shareholder Agreement (the "Shareholder Agreement") to certain
private sale transactions (the "Proposed Private Sales") arranged by Xxxxxxxxx,
Xxxxxx & Xxxxxxxx Securities Corporation ("DLJ") and other investment banking
firms mutually selected by FHS and CWF involving 8,026,298 shares of Class B
Common Stock held by CWF between the date hereof through and including June 30,
1998.
The purpose of this letter is to confirm the revised agreements and
understandings relative to FHS' consent to the Proposed Private Sales under the
Shareholder Agreement, which letter is meant to replace the letter agreement
dated November 6, 1997 previously entered into between the parties. Such revised
agreements and understandings are as follows:
1. The Proposed Private Sales would not exceed 8,026,298 shares of Class
B Common Stock (the "Subject Shares") and would not result in a sale
price (net of reasonable third party sales commissions) that is a
discount to the "Market Price" (defined below) of more than 5%. For
purposes hereof, "Market Price" means the closing sales prices of FHS
Class A Common Stock on the New York Stock Exchange, Inc. ("NYSE") for
the date on which the Sales Period (defined below) commences.
Mr. Xxxx Xxxxx
June 1, 1998
Page 2
2. Any shares of Class B Common Stock sold in the Proposed Private Sales
would reduce the shares otherwise subject to registration under the
Registration Rights Agreement between FHS and CWF on a one for one
basis.
3. Such Proposed Private Sales would comply with all laws and regulation
(including, but not limited to, the federal securities laws) and
Health Net's (and FHS') undertakings to the California Department of
Corporations (the "DOC"). FHS and CWF representatives have been in
contact with the DOC to discuss the filings and approvals that must be
made with and/or received from the DOC and, in this connection, we
understand that the DOC has indicated that it will not object to the
sale of the Subject Shares by CWF.
4. CWF hereby agrees to use DLJ as an investment banking firm to arrange
for the sale of at least a majority of the Subject Shares, provided
that CWF receives confirmation to its reasonable satisfaction that DLJ
will be able to consummate such Proposed Private Sales on terms and
conditions comparable with other investment banking firms of at least
equivalent stature. In the event CWF and DLJ are not able to agree on
terms and conditions with respect to the Proposed Private Sales prior
to June 15, 1998, FHS and CWF agree to negotiate in good faith for a
period of up to five business days to select another investment
banking firm of equivalent stature to sell the Subject Shares. In the
event such good faith negotiations do not result in the selection of a
mutually agreeable investment banking firm, CWF shall have the right
to select such firm to sell the Subject Shares provided such firm is
of a stature equivalent to DLJ.
5. All of the Proposed Private Sales will occur prior to the open of the
NYSE on July 1, 1998 pursuant to a sales process to be determined
between CWF and the investment banking firm selected to sell the
Subject Shares, which sales process will attempt to maximize the value
to be received in selling the Subject Shares and preserve the market
price of FHS' common stock during and after such sales.
6. CWF agrees to provide FHS with such information regarding the Proposed
Private Sales as FHS may from time to time reasonably request,
including without limitation information with respect to the proposed
sale prices of the Subject Shares and other economic terms, the
procedures anticipated to be used by CWF and DLJ in connection with
the Proposed Private Sales and the status and timing of the Proposed
Private Sales.
Mr. Xxxx Xxxxx
June 1, 1998
Page 3
7. The parties agree to keep confidential the Proposed Private Sales, the
existence of this letter agreement, the terms and provisions of this
letter agreement and all discussions, negotiations and other
information relating to the foregoing (collectively, the "Confidential
Information") and will not (except as may be necessary to implement
the Proposed Private Sales or as required by applicable law,
regulation or legal process, and only after compliance with the
provisions of this paragraph), without the other party's prior written
consent, disclose the Confidential Information in any manner
whatsoever. In the event that either party or any of such party's
representatives or agents is requested pursuant to, or required by,
applicable law, regulation or legal process to disclose any of the
Confidential Information, the party receiving such request or order
will notify the other party promptly so that the other party may seek
a protective order or other appropriate remedy or, in the other
party's sole discretion, waive compliance with the terms of this
letter agreement. In the event that no such protective order or other
remedy is obtained, or that the other party waives compliance with the
terms of this letter agreement, the requesting party will furnish only
that portion of the Confidential Information which the requesting
party is advised in writing by counsel it legally required and will
exercise its best efforts to obtain reliable assurance that
confidential treatment will be accorded the Confidential Information.
8. Reference is made to that certain Registration Rights Agreement dated
as of March 1, 1995 (the "Registration Rights Agreement") between CWF
and FHS. In partial consideration for FHS' consent to the Proposed
Private Sales under the Shareholder Agreement, CWF agrees to waive any
and all rights it may have against FHS pursuant to the Registration
Rights Agreement with respect to the failure, if any, of FHS to file a
registration statement in connection with the February 25, 1998 demand
registration notice letter of CWF to FHS (the "February 25th Notice")
upon consummation of the Proposed Private Sales or sales of the
Subject Shares by August 1, 1998 pursuant to a registered public
offering (whichever occurs sooner). Between the date hereof and July
1, 1998, CWF agrees that FHS may suspend all activities related to the
preparation and filing of a registration statement pursuant to the
February 25th Notice. If any of the Subject Shares remain unsold after
July 1, 1998, FHS shall recommence the preparation and filing of a
registration statement within ten (10) days after receipt of notice
from CWF of its intention to sell at least 2,000,000 of the unsold
Subject Shares under the Registration Rights Agreement.
9. FHS is hereby granted an option (the "Option") to redeem up to
2,271,344 shares of Class B Common Stock held by CWF after the
Proposed Private Sales at the Redemption Price (as defined below) as
follows: (i) the Option would become
Mr. Xxxx Xxxxx
June 1, 1998
Page 4
exercisable at the earlier of (A) the first trading day after the date
on which the Sales Period ends or (B) July 1, 1998 (such earlier date
referred to as the "Option Commencement Date"); (ii) the Option would
remain exercisable in whole or in part for a ninety (90) day period
commencing on the Option Commencement Date; (iii) the "Redemption
Price" per share would be equal to the higher of (A) the product of
(I) .97 and (II) the Market Price on the date of the Option exercise
and (B) the average per share net proceeds received by CWF (i.e.,
after all sales commission and costs) for all previously consummated
Proposed Private Sales; (iv) consummation of the redemption would be
subject to the condition that appropriate DOC approval is obtained to
permit FHS to consummate such redemption (unless FHS determines that
such DOC approval is not required); and (v) redemption by FHS would be
consummated no later than three (3) business days after DOC approval
is obtained.
10. FHS would use its best reasonable efforts to receive DOC approval to
consummate the redemption as expeditiously as possible (unless FHS
determines that such DOC approval is not required); provided that it
is understood that since the DOC has indicated it will need to assess
the actual Redemption Price and its impact on FHS prior to giving such
approval, such approval may not be formerly requested until after the
Option exercise date. Accordingly, it is agreed that FHS will have a
period of up to forty-five (45) days from the Option exercise date to
obtain such DOC approval; provided that in the event DOC approval is
not obtained within such forty-five day (45) period (unless FHS
determines that such DOC approval is not required), the Option shall
be null and void notwithstanding the exercise thereof.
11. CWF has represented to FHS that CWF has taken the position with the
Internal Revenue Service, and continues to believe, that FHS is not a
"disqualified person" for purposes of Section 4946 of the Internal
Revenue Code. FHS has no reason to disagree with CWF's position.
Moreover, both parties acknowledge and agree that FHS' exercise of the
Option is not meant to be a purchase of shares but rather is meant to
be a redemption of such shares (which redemption is consistent with
FHS' prior redemption of CWF shares). Both parties also realize that
such redemption procedure would fall within an exception to the
"self-dealing" rules set forth in Internal Revenue Code Section
4941(d)(2)(F) and Treasury Regulations Section 53.4941(d)-3(d)(1) in
the event FHS would be considered a "disqualified person." In this
light, the parties acknowledge the importance of the redemption
characterization of the Option and agree to take all actions
consistent with such characterization.
Mr. Xxxx Xxxxx
June 1, 1998
Page 5
12. CWF acknowledges that it is not currently in the possession of any
material, non-public information of FHS (whether received from FHS,
its representatives or otherwise) and that it will comply with all
applicable securities laws (including those prohibiting the use of
material, non-public information) in effecting the Proposed Private
Sales. In addition, CWF acknowledges that in effecting any such
Proposed Private Sales it is acting at its own risk, and that FHS is
not responsible or any fluctuation in the Market Price of the Common
Stock.
By executing this letter agreement in the space provided below, CWF hereby
accepts and agrees to all of such conditions, agreements and understandings and
commitments to the obligations set forth herein.
Please do not hesitate to contact either Xxx Xxxxxxx at (000) 000-0000 or me at
(000) 000-0000 with any questions you may have.
Very truly yours,
FOUNDATION HEALTH SYSTEMS, INC.
/s/ X. Xxxxxx Xxxxxx
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X. XXXXXX XXXXXX, ESQ.
Senior Vice President, General
Counsel and Secretary
ACCEPTED AND AGREED TO BY:
THE CALIFORNIA WELLNESS FOUNDATION
By: /s/ Xxxx X. Xxxxx
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Name: Xxxx X. Xxxxx
Title: President and CEO
cc: Xxxxx X. Xxxxx, M.D.
Xxx X. Xxxxxxx
Xxxxxxx X. Xxxxxx, Esq.
Xxxxxx X. Xxxxx, Esq.
Xxxxxx Xxxx, Esq.
